Yuri Okubo, Senior Researcher, Renewable Energy Institute
While the number of plans to expand and build new coal-fired power plants has increased steadily after the Fukushima nuclear disaster, there are signs that this trend might come to a hold. In January 2017, the Kansai Electric Power Company canceled its plan to convert fuel used at the Hyogo Ako Plant from heavy oil to coal. Starting with this decision, it had been announced by June 2018 that 5 projects with seven units, or 3.62 GW, have either been canceled or switched to biomass.
Coal-fired power generation is still regarded as a low-cost option at present, and the number of plans for building new plants had increased to more than 40 units at one point in time. This trend was driven by the halt of nuclear power generation, liberalization of the retail business, and the lack of effective carbon pricing and support from the Government, which considers coal to be a “base-load” energy source.
Investors of Canceled Projects Refer to the Uncertainty of Business Profitability and the Change in the Business Environment
More than 30 units of these planned projects were announced in 2013 or after, but the environment surrounding the energy business has changed drastically in recent years. We can get a glimpse of the change from various sources, including press releases issued by companies announcing the cancelation of their projects.
Canceled Coal-fired Power Plant Projects
One of the key reasons for the project cancelations was that electricity demand did not increase as Project developers had expected. Domestic demand for electricity has fallen by as much as 10% in five years since 2010. While nuclear power generation came to a halt due to the Fukushima nuclear incident, a large part of it has been substituted by energy conservation, which has progressively taken root in society (Column dated 8 March 2017). According to the results of the nationwide energy demand estimation for fiscal 2018 announced by the Organization for Cross-regional Coordination of Transmission Operators (OCCTO) (released on 17 January 2018), the average rate of change of the peak energy demand up to 2027 is 0.1%, indicating that any major changes or increases are not expected over the next ten years.
The second factor behind the cancelation was the expansion of renewables. The ratio of renewables continued to increase over the past five years while overall energy demand declined substantially, and its ratio in the total amount of electricity generated and purchased rose from less than 9% in 2010 to 15% in 2016. The ratio even surpassed 20% in some months on a monthly basis. Hence, the declining electricity demand and the increase in renewable energy are likely to have contributed to reducing the operation hours of fossil fuel power plants. These are critical changes in the business environment, although not specifically mentioned as reasons for canceling the projects. The situation is becoming similar to what was experienced in Europe, when the major utilities that had monopolized the industry over the years incurred rapid losses as the operations of their coal-fired power plants were curbed. While coal-fired power plants are likely to face mounting costs in order to take environmental countermeasures in the future, the cost of renewables is declining dramatically all over the world and is expected to continue to decrease even further in the future. Japan is no exception; the cost of generating power through solar PV has halved in the past five years, and the cost of wind power has fallen to lower than 14 yen/kWh.
The third point that the project developers miscalculated, or the change in the business environment, was the adoption of the Paris Agreement which clearly showed the direction for decarbonization. Coal-fired power generation is an energy source that produces the largest amount of CO2 emissions. In several countries in the EU and in Canada, governments have made numerous announcements about their timeframe to phase out coal-fired power generation between 2020 and 2030, in accordance with the Agreement. Financial and business sectors have also declared that they would stop investing, insuring and extending loans to coal-fired power plant projects. In an international context, involvement in the coal industry has become a factor to lower the rating and value of a company. In Japan, objections have been raised by residents concerned about air pollution and environment as a large number of project plans have come to light. Three out of the five canceled projects have been withdrawn or converted to biomass, referring to both the Paris Agreement and consideration for the environment.
An additional factor that may change the business environment further in the future is the trend to shift to renewables by the energy user corporations.
The Future of the Remaining 33 New Units (17 GW) Receives Attention
Without counting those that have been canceled or have already started operations, 33 coal-fired power plant plans (approx. 17 GW) still remain in various parts of Japan. Many of the companies that have announced cancelations recently have attributed them to changes in the business environment as mentioned above and the associated loss of business profitability. The time has come for the developers planning to build the remaining 33 plants, to review their original business plans by once again considering climate and environmental impact as well as the current status and trends of energy supply and demand.
Plans for Building New Coal-fired Power Plants in Japan